The Poor and the Middle Class

Start counting the poor in India and you are bound to get into controversy. In “A Comparative Perspective on Poverty Reduction in Brazil, China and India,” Martin Ravallion (October 2009) calculates that 42% of the population in India in 2005 lived in households with income per person below US$1.25 a day (converted using purchasing power parity exchange rates for consumption in 2005). But he finds only 20% of the population under the US$1.25 poverty line when using a different method as a sensitivity test. The difference is huge. One number is twice the other and corresponds to two hundred million people (more than the whole population of Brazil!).

Ravallion repeats the exercise and finds that in Brazil, in 2005, the population who lived in households with income per person below US$1.25 a day (converted using purchasing power parity exchange rates for consumption in 2005) is 8%. When using the alternative sensitivity test method, it is 10%. Compared to India, the difference is small (2% of the population) between the two measures.

I suspect that instead of trying to calculate the number of people with less than US$ 1.25 a day, policies for poverty reduction should focus on the bottom quintile of the population: the 20% poorest group in the country.

One of my reasons is that inequality matters. Think of poverty as a relationship.

The increase in food prices excludes the poorest section of the world’s population from the market. Acquiring the majority of things that money can buy depends on your position in society’s income pyramid. Access to quality education, or good health coverage, depends not just on how much money you may have, but also on how much other people is willing to pay for them. Therefore, your wealth or poverty is relative to that of the rest of society.

But even when focusing policies for poverty reduction on the 20% poorest group in society, we must investigate what can be done to reduce inequality. A large middle class is one of the characteristics of a developed society – one where 50% of the population has access to good education and medical cover. And, according to Aristotle, the existence of a large middle class is a condition for a well administered State because it reduces polarization and violence. In well administered States the probability of economic progress increases.

Understanding why economic progress depends on the existence of a middle class becomes easier when we examine periods where it did not exist. In Antiquity, the Egyptians were capable of impressive feats of engineering, but only used their knowledge to build tombs for their Pharaohs. Centuries later, and before other civilizations, India was able to produce good quality steel – but only used it to make swords. The Romans knew about steam engines, but were content to use them simply to open temple doors. These are all examples of how a very uneven distribution of income accumulates physical and human capital for the privilege of the elite.

Gunpowder, the printing press, paper and the compass were invented during the Ming dynasty, around the 14th century. However, the industrialization that would transform China at the end of the 20th century only took place once the gap between the rich and the poor had been bridged. Economic progress is dependent on a middle class.

Politics is another area that suffers when faced with great inequality because it intensifies polarization (the apparent distance groups feel in relation to each other). Organized social movements, such as strikes, rebellions and terrorism are impossible without the notion of a group identity. Polarization feeds off an identification with the group one belongs to, as well as inequality. Amartya Sen dedicated his book, Identity and Violence to the hypothesis that most conflicts and acts of atrocity are based on the illusion of a single identity. The art of creating and nurturing hate invokes a dominant identity and suffocates other associations. And inequality simply intensifies polarization.

Defining a middle class is not so easy. Even in the US – taken as the benchmark for a middle class country – economists and sociologists are unable to define it with uniform precision.

Just as the paradox of the chicken and the egg, it is difficult to know which came first: is it the well administered State that allows equal growth, or the egalitarian society that produces good public administration?

So, what about your country? Do you think your country has a large middle class and so satisfies Aristotle’s condition of a well administered State? Do you think we should count the poor below US$1.25 or focus policies on the bottom quintile of the distribution?

Comments

I think that at least a portion of policies should be focused on the bottom quintile of the population distribution. I've actually been discussing this at length with a group of classmates within an IR masters program. We are in the midst of a group project that's aim is to provide policy recommendations for Vietnam as a way of accelerating development there. Our research indicates that although there has been vast poverty reduction across Vietnam since 1991, the bottom 20% of the population has more or less maintained the same income levels. Further analysis revealed that the majority of the poverty reduction policies implemented thus far had been in urban areas, and that the poorest of the poor (often residing in rural locales) were seldom assisted. It makes sense that it's easier to bring those that lie on the fringes of poverty into better economic circumstances, possibly even into the middle class. Therefore more most be done to address those that live in dire poverty, those that have the most difficult journey ahead.

Poverty is not a single issue, it is related to many aspects and differs in its intention and cultures.
Having lived and worked for over 30 years in Asia, I have seen that poverty is not only restricted to rural areas, but also manifest itself in the big cities
Socio-economic policies play a big part, but education and how it is perceived is essential to change the thought process of those who need it the most.
Without education we do not achieve and without achieving we do not succeed.
For as long as I have worked in Asia, the Worldbank and the ADB have injected moneys into many of the countries for education, but I have seen from close range that money is not the main factor, it is effective programs and people to put these programs together, who could slowly eliminate poverty.
Education is one of the elements, another of many others is energy.
Aknowledged, by many Asia governments as one of the important aspects of eliminating poverty, it is essential to give people better living conditions in the near future.
However, a word of caution, over the years, many organisations have been involved in
putting educational programs together, with asistance from the Worldbank,ADB and other financial institutions, but many programs have failed, due to trying to educate people by foreign standards, without implementing them in the exsisting culture.
Many existing governments like to have there people trained and educated at source and not sent them abroad and see 90% not returning home, because the grass is greener as the saying goes.
Also, many smaller organisations, with great products, skills and services, in many countries have been put off by the lengthy bidding and tender processes and I have met many over the years.
When we really are indicating as a worldwide society and our intentions are focussed of helping eliminating poverty, we should work to an international strategy, but implementing this in an existing country culture.
This a subject for which I have a lot of passion and enthusiasm and anybody, especially in Asia, but not only, who likes to discuss this in more detail or needs advise
please contact me.

The analysis of poverty is well done and hundreds of other writers and wise men done in the past. Our poverty is still increasing as days pass. Nepal located between China and India is one of the prey of such poverty and we have been struggling to alleviate poverty. Not much success! In order to reduce poverty hundreds of NGOs are working but not much success due to lack of financial resources. At present, we need more actions for poverty alleviation according to your analysis of poverty article.

That is an interesting discovery. I often wondered how a lot of these surveys are done in regards to urban compared to rural area. I think these finding would be replicated in any place in the world but everybody will always still focus on urban areas

True, poverty is a relative issue. India is a land of abundance due to its fertile land and hard-working people. But distribution of wealth keeps a large population almost hungry. 15 percent population of India comprising of political leaders, some businessmen and government employees own about 85 percent wealth of India and consume most of GDP of the country. Out of remaining 85 percent, 3 years back 35 percent were below poverty line having no access to health, education and justice.
Government at the center in India has managed to raise prices of everything to about 3 times in the last three years making health, education and justice un-affordable to about 50 percent population now.
From the government side, health care services are negligible, education is commercialized and justice needs a lifetime. All this is not because of things being beyond control but very much intentionally designed and implemented by the 15 percent population of the country due to its vested interests. Some other observations in this regard are available at http://indiainperil.blogspot.com
and the solution lies at http://intellocracy.blogspot.com

Yes, the key parameter is access to quality Education. The poor are aware of this factor as showcased by Greg Mortenson in "Three Cups of Tea"(Remote region of Baltistan).
Sustainability is the key as some of our ancient Institutions have whithered away. Hence , it is not just about amounts of money allocated in Economic Budgets, but benchmarking key elements of why some institutions survive & thrive! Educational access was also one of the elements in fostering the Industrial revolution in England during the seventeenth century.
As regards the perils of totally relying on the use of Statistics to formulate public policy, this has been catalogued elsewhere.
Just a footnote-the middle class has been responsible for a number of revolutions in the recent past, some violent (ask the French).
Neville Bhasin

The philosophy it seems is correct. However one question rises. Why 20%? Why not 30 or 10% of the poorest section to be focused upon. The segment of society requiring such attention varies from country to country and probably more from region to region. It may be inappropriate to define a threshold percent value.
2. A reasonable approach may be to tie up such a strategy with demographic data so that financial support is inversely proportional to mathematical distribution of wealth within the society, resulting in maximum funding for the poorest and zero or negligible for the affluent.
3. Ways and means must be found out for simultaneous political progress. The hen and egg dilemma is also applicable vis-a-vis economic and political progress. The poor and middle class is required to be represented adequately from people from their own class rather than by those whose only right to contesting elections is their nationality. Policies need to be developed to which such mechanisms.
4. The policy is applicable globally. For the rich nations it may still be a choice. However for the developing countries it is a matter linked to their survival.

Inequality matters and poverty is a relationship, a good analysis as well as reflection.
Why both poverty and inequality continue to be a staggering challenge in India, in spite of its rich resources, tradition and planned schemes. It is more at the implementation side and to a greater extent at the level of governance, transparency and accountability. All these need to be visible. How and to what extent that needs to be worked out.

As I indicated in a previous blog, it is not only the insurgents of moneys put into governments to eliminate poverty, but the willingness of central and local governments to make a change to those who need it most.
Having discussed this subject with people in different areas of government in the last couple of month, it is become clear, that decisions are now being made at a local goverment and provincial level.
There is a clear sign that there is a willingness to proceed, but the problem facing many is What has to be changed, Where have the changes to be made and When could a start be made to educate the people in the poverty stricken areas.
Provincial and State Govenments have never been advised on how investing of serious amounts of moneys should be distributed and also have to face the facts that not enough people have the background to establish a controlled situation.
I am still of the opinion that education, from early learning,primary,secondary, volantarily and higher is essential to get people out of poverty, but there are two parts which should be included,firtsly as said before is energy and the second is to train the teachers, within the country to be successfull.
I will leave it to the readers of this blog to come back to me and like to see if we come together to a part solution.
A start is better then doing nothing at all.

I think education only can make a difference.So governments should focus mainly on education.As education have a lot of potential - it is a source of awareness,it is a source of empowerment and thus a source of poverty eradication.So make a knowledgeable society and became free from thinking about poverty eradication policies.
As far as statistics of poverty is concerned i am very much in favour that it is a relative one.It certainly vary from society to society or country to country.

The tribal communities are among the poorest of the poor in India;they live in islands of abject poverty in a vast ocean of a rich forest resource; because they have no right to use it for their benefit;An innovative concept of joint forest management to involve local communities in protecting the forests and in return giving them regulated access to non-timber produce was launched in the 1990s; several independent studies have dubbed this programe a failure owing to bureaucratic shackles and the low returns the beneficiaries reaped; the forest department itself has admitted that waged employment has been the main benefit so far; the one ray of hope is that forest growth has improved owing to protection afforded by the community although the community’s poverty has remained unaddressed.
Even where they are permitted to collect forest produce like tamarind,they get Rs.10 a Kg. while it sells in Hyderabad market today at Rs.100 to 130 a kilo.
De-centralisation of powers,true and real local self-government,co-operative marketing societies are needed to improve tribal economy and reduce the influence of extremist elements.

Yes, agree to a certain extent that "quality" Education is important in alleviating poverty. But, what education? is it the formal education provided at schools, universities and other formal institutes or does it include non-formal education as well. The World Bank and ADB has been providing funds for development of formal education in Sri Lanka for the last 25-30 years. Have these programmes brought about desired results?. I am referring to the aspect of quality.
Regarding the comment on Nepal NGOs.
Aren't these NGOs dependent on foreign donors for funding? If yes, aren't they donor driven? Have these NGOs become organizations owned by the poor? Why not go for community led processes.

I am from the Philippines, and have worked as a financial auditor in one of the big four. I lived in both the the province during my youth, then worked and lived in Makati and in Singapore after college. I have also travelled to many different countries and cities in Europe, the USA, Asia including China and Australia. In short, I have "experienced" living and communicating with the best and brightest, as well as communicated with the poorest of the poor in the various cooperatives I am helping "fix" and maintain their books of accounts and conducting pre-membership seminars.
I am not knowledgeable about the statistics of the Poor and the Middle Class in the Philippines, but my observation is that there are many who have completed their college education (especially the younger generation) but that is not a guarantee of getting out of Poverty especially if they remain in the place where they come from. To raise their standard of living, they may have to travel to the city or out of the country to get better jobs with higher pay. Many people in the rural areas only finished secondary and/or elementary education. There is Poverty across the country whether in rural or urban areas. In the cities, there are people living as squatters, and in the provinces, there are those not able to eat decent meals three times a day, and sometimes, there are people knocking and asking for help to buy food.
There is gambling across the country (e.g. lotto). And there is that problem of CORRUPTION which is seen and heard in most campaign ads of the politicians seeking posts in the upcoming May 2010 National and Local Elections.
The quality Education is one key step of eliminating or getting out of the cycle of Poverty. Poverty is a state of living below what is dignified as a human being and then it is "passed-on" from generation to generation, and could only be broken by getting quality education. A few have freed themselves and their family mainly through finishing a college degree, obtaining work experience, and getting out of the country - which is the fastest though not the best way (with the blessings of God in one's adventure outside of your own shores). Those that remain in the country though gotten a degree may have to work a lifetime but may remain in the Middle class or Poor, because of the standard of salary in my country that is far off than those in developed countries like Singapore.
Just yesterday, we had our General Assembly for one the cooperatives I am member and worked as accountant. Only a few members were there. Needless to say, that it is difficult to get cooperation even from those people who need help. The poor does not seem to understand despite how we explain that one way of getting out of Poverty is to group themselves and own their own "company" that could help them financially through micro-finance loans. The capital comes from the members' capital build-up (CBU) and also from external borrowings, the latter comes with related interest from cooperative banks. It is frustrating at times to work for these organizations because those we want to help do not seem to cooperate, i.e. not attending meetings, or worst not paying their debts. But for those leaders who want to see progress, giving up is not an option. Hopefully, these people will come to realize that one way of getting out of Poverty is to help themselves as a group.
Another factor that contributes to society's Poverty is the laziness coming from probably losing hope, or has been a habit, or lackopportunities for growth. Government intervention in terms of educating the poorest of the poor may have to be done in more consistent and continuous manner. As can be seen, there is some help coming from the local government units financially, but amounts are so little, these can hardly help augment the plight of the cooperatives, or of the poor. I believe Poverty in the Philippines is caused by systemic problems which will take a long long time to resolve.
One great step may be is to for international organizations to "intervene" through their influence in reducing CORRUPTION so that the financial assistance given to our country may cause the improvement of the quality of Education and Health care to alleviate the Poverty condition. Having a big percentage in the Middle Class may seem to be an indicator of good government administration, however, having a 10%, 20% or 30% population in Poverty is still a problem that needs to be solved by government, and hopefully by the international communities.
Thank you.
Maria Melvic P. Garces
Certified Public Accountant

In a capitalist society, the tendency is that the policies (and the legislative body promoting these policies) are inclined towards protecting the interests of a few upper class... they are the ones holding the biggest chunk of the country's wealth, not all, but mostly this is the case.
The middle class, educated in a capitalist system, continues to work for these few wealthy families - - in the malls, in factories, in agri-business farms, etc. receiving wages that are minimum (or even less)... and who makes the laws to set the minimum wage? these are maily the politicians supported by the few wealthy families... and the cycle goes on and on for generations.
The poorest of the poor? they continue to contribute societal problems through "no choice" or "victim of circumstance" or "manipulation" or "influence" - - resulting to crimes (i.e. robbery, thief, murder/homicide, smuggling, trafficking/illegal recruitment, kidnapping, insurgency, etc.
Education is one way out of this scenario. If only, the majority has a common understanding of what is really the problem... and that there is that political will to rise above poverty (through right education), then maybe the cycle of poverty may be broken, or at least reduced.

I have been thinking... like a company whose financial condition is unstable and its balance sheet showing a deficit figure so is a person who is suffering the effects of Poverty. To improve its financial condition, either management find ways to increase productivity/revenue/growth to eventually result in a profit (at the end of the period) OR find ways to reduce costs by improving efficiency or cutting down unnecessary costs and expenses. Or apply both strategies.
Same for an individual - to alleviate his standard of living, he has to find ways to INCREASE HIS INCOME (i.e. if he is a laborer, his wage must be increase, or work more hours; same with salaried employees) OR he has to manage to REDUCE HIS COST OF LIVING (i.e. through cost savings tips and buying only what he needs). Like a company, there are fixed costs that have to be borne, and so is the individual to bear his basic needs of food, shelter and clothing. If a family is living in Poverty, and has to spend a certain fixed amount to survive, then he has to work on a day to day basis... and what if? the bread winner becomes unemployed for reasons of his own making, or for reasons beyond his control. What will happen to the "fixed costs" that need to be purchased? For those in this category, government, NGOs, and other concerned entities must help and rescue these families at these times... however, in the long run, there must be another solution to the problem of Poverty as financial aid cannot continue on and on. The family or individual with the help of government (especially) must be put in a situation where they can finally HELP THEMSELVES.
One way is education... this is true mainly for the youth. But how about those already have families of their own and may not have the chance to go back to school? The institutions must help them IMPROVE THEIR SKILLS, or provide them with a means to employment or entrepreneurship, the latter needs capitalization and the skills to run a business. Another way, is for government or NGOs to promote LIVELIHOOD PROGRAMS, with skills training.
There are many ways to alleviate Poverty. But it is a continuous challenge for the LEADERS to find systematic ways to implement all of these possible solutions. Because as we sit down and think of more strategies, more and more people are suffering from the effects of Poverty... and so this calls for quick and effective response from those who have the power, the influence, the means to help.

Inequality matters. Free markets matter most.
I hope they promote entrepreneurship in India and foster innovation that way.
Too many people overcomplicate things. The foundations are the same. The root problems are the same. And time is needed for progress.

There is no doubt that policies can help reduce poverty level in developing countries, but the problem in underlying corruption that exists in these countries. Rid the country of corruption and bribery that helps the rich get richer while the poor stays poorer and the end of poverty is much closer.
Joddi

The Middle Class of India - how big is this!
SUBMITTED BY RAMESH KUMAR NANJUNDAIYA ON MON, 2011-04-04 10:13.
This was a response to an earlier article by James Seward (please see below). I feel this article holds good for the present discussion as well. Per my personal observation the growing Indian Middle Class can be generally classified on their "buying power" - which effectively is their monthly earning and/or take home salary. The range would be a monthly salary or "earning band" of INR 20,000 to 35,000 or approx average USD 700/- per month. I personally feel this "class of people" number almost 300 million today (comprising of urban and rural). This is certainly a big and a growing group which actually spends thus creating a huge and a growing market. This phenomenon has attracted all types of Multinationals to the Indian market space along with a growing consumerism off take particularly since the last 6 years and Indian companies/services are also enjoying the boom.
Is East Asia leading the world out of the crisis?
SUBMITTED BY RAMESH KUMAR NANJUNDAIYA ON THU, 2011-03-17 04:13.
James Seward has summed up very well on the current economic situation of the seven countries in this region. He has made a useful observation on the equity markets in these countries to draw some sort of conclusion to see if indeed the equity markets are a leading indicator of economic recovery. While it is true that the major stock markets in the region have regained all of the losses of the 2008 and that they are up by over 66%, with Indonesia, Vietnam, Thailand and Korea leading the pack. Is this the true indicator - it could well be. As a comparison, if one were to look into the Indian economy in the same period that James has analysed the above markets, one observes that the Indian Economy is simply booming. The reasons are varied, but one which has really propelled up the Indian economy (in the last 6 years) is the growing buying power of people in the so called "Middle Income Group" which in the case of India represents almost 400 million people. This is a huge market to cater to and is growing. This group is the one which is pushing demand locally and thus giving a boast to the economy. It is a life cycle change in the population group. The same phenomena is happening in the seven countries of the East Asia analysed above but with different degrees. The Middle Income Group of people in these countries (varies from country to country) is driving demand and thus helping the economy to grow. This is the group which is spending on all goods and related services. Because of such a growth demand for goods/services, banks will witness increase their lending in these countries in the next couple of years. Once that happens, the economy grows, when this happens, the equity markets become much more active and again the economy grows with more people coming into the "Middle Income Group of People" or the people with buying power or cash to spend.

I am astonished to see, read and hear that Some International funding agency have given aid or flexible loan to some 3rd world country; with conditions to impose taxation on Tycoons and to develop country's own infrastructure of Financial Self Sufficiency but unfortunately every Government, every where uses those funds for other purposes; including subsidizing some basic necessities to the Public and rest funds go to either BIG CONSULTANTS or to the AUTHORITIES of such nations. What comes to a poor? Subsidized Electricity, Food and ..........for some months, if one is lucky. What for next month or years? Why Policy making forums are not bound to have Medium level Educated personals form POOR CLASS who can better translate the ideas of that particular class for establishing a long lasting solution of not all but for few of the Basic needs, less cost and better outcome. How come an ELITE class, highly educated, ignorant about the basic living need of any particular area, unaware of customs, can represent the Poor or a class living under Poverty line? World Bank so many project either failed or just vanished or became inactive after some time, as those were only planned in Air conditioned rooms or with the FEASIBILITY study signed by some one Rich man of that country. For God Sake, if you really want to serve poor, make poor a part of your team, who can share needs they had from their start of lives and a solution for that, as Media is now a days telling every truth to every body, poor or Rich, irrespective of if one is educated or non educated. WORLD BANK to think and refine policies.